31 October 2018 by Dispute Resolution Alert

The politician and the dirty money: Does gratification given after the act constitute corruption in terms of the prevention and combating of Corrupt Activities Act, no 12 of 2004?

The Prevention and Combating of Corrupt Activities Act, No 12 of 2004 (PACCA) is the primary piece of legislation in South Africa’s arsenal of anti-corruption legislation.

The purpose of PACCA is, amongst others, to:

  • strengthen measures to prevent and combat corruption and corrupt activities;
  • criminalise various specific corrupt activities, in addition to creating a general offence of corruption;
  • place a duty on certain persons holding a position of authority to report certain corrupt and/or fraudulent activities; and
  • prescribe penalties for those found guilty of committing offences in terms of the Act.

Section 3 of PACCA provides for an all-encompassing general offence of corruption. Basically, in terms of this section, anybody who accepts (or even agrees to accept or offers to accept) any gratification from anybody else or gives (or even agrees to give or offers to give) any gratification to anybody else to influence the receiver to conduct himself or herself in a way which amounts to the unlawful exercise of any duties, commits the offence of corruption. PACCA also criminalises specific corrupt activities relating to, amongst others, public officers, contracts and the procurement of tenders. The term gratification is defined in PACCA. The definition is quite broad and includes, amongst others, cash, a gift, donation or loan, an offer of employment, a discount, etc.

PACCA also recognises the link between corrupt activities and other forms of crime such as organised crime and financial crimes including money laundering. As a simple example, a criminal may attempt to integrate the funds he/she received from corrupt activity, such as a bribe or kickback, into the financial system by channelling the funds through complex financial transactions. During the transaction(s), he/she may involve several entities as conduits and use legitimate financial institutions as a means to disguise the corrupt source of funds as well as the ultimate beneficial owner of the proceeds of unlawful activity.

In a recent judgment: Scholtz & others v The State (428/17, 491/17, 635/17, 636/17) [2018] ZASCA 106 (21 August 2018), the Supreme Court of Appeal (SCA) considered a matter involving corruption and money laundering, along with the question of whether the receipt of gratification after the conclusion of the relevant contracts constituted corruption.

The first appellant, a Pretoria businessman, and the eighth appellant, a high-profile politician, along with several entities from which they benefited, brought an appeal against the ruling of the Kimberley High Court in 2016 relating to their previous conviction on charges of corruption and money laundering. The first and eighth appellant, respectively, also appealed the duration of their respective sentences.

The matter concerned several lease agreements that had been concluded in the Northern Cape between various State entities and certain individuals (as well as entities in which they had an interest), during the period May 2006 to August 2008. In most instances, the execution of these lease agreements were plagued by procurement irregularities, non-compliance with the relevant protocols and procedures prescribed for provincial government leases and the incorporation of excessive rental escalations or inflated rental amounts.

The Kimberley High Court had found that the eighth appellant, a senior politician in the province, had corruptly used his influence to ensure that the lease agreements were awarded to certain individuals and their companies. In return, the eighth appellant had received gratification, including payments of R228,000.00 and R500,000.00 (gratification amounts), respectively, after the conclusion of two lease agreements. It was argued that the gratification amounts were paid several months after the conclusion of the leases and, accordingly, no inference linking them to the conclusion of the leases could be drawn. In its finding, the SCA stated that the relevant lease agreements were concluded by an entity which required financial assistance to purchase the leased properties. The SCA found that the entity lacked the funds to immediately make payment of the gratification amounts, however, the gratification amounts were paid once the leased properties became income producing. Contrary to the argument that had been made, there was no substantial delay in making the payments.

The SCA added that it was immaterial whether the eighth appellant’s influence led to the leases being signed at all. The offence of corruption would have been committed if he merely undertook to use his political influence to influence the relevant department to conclude the lease agreements and subsequently accepted a gratification for doing so.

In considering the duration of the first and eighth appellant’s respective sentences, the SCA found that there were no substantial and compelling circumstances which justified a lesser sentence than the 15 years’ imprisonment which the trial court had imposed. When addressing the issue of sentencing regarding the first appellant, the SCA stated that “Successful business people should set the standard by acting properly, not corruptly. Corruption in the sphere of government contracts is an on-going blight upon our constitutional democracy, and those who offend must expect the full might of the law to be brought down on them.”

Regarding the eighth appellant, the SCA drew attention to the high political office which he had achieved and subsequently abused to corruptly enrich himself. It added that “if there is any prospect of fighting the endemic corruption which exists in South Africa, it is for our political leaders to set the example and not to misuse public offices to corruptly obtain personal wealth.” The SCA further stated that as a deterrent “it is necessary for an unequivocal message to be sent out that corruption on the part of politicians, especially those holding high office, will not be tolerated and punishment for those who act corruptly will be severe.”

The first and eighth appellant were successful in appealing the counts of money laundering and, as a result, those convictions and sentences were set aside. The SCA found the reasoning of the Kimberley High Court in respect of those counts of money laundering to be disjointed and counsel for the State conceded that the guilt of the first and eighth appellant in respect of those counts had not been established. Despite this, the conviction of the first and eighth appellant on different charges of corruption were confirmed as was the sentence of 15 years’ imprisonment imposed upon each of them.

The finding of the SCA accords with the spirit and purpose of PACCA to prevent the illicit acquisition of personal wealth through corrupt activity which, if unchecked, can be particularly damaging to democratic institutions, national economies and the rule of law.

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